In a blogpost on its website, Amazon cites the need for lower e-book prices as a “key objective” in its ongoing dispute with Hachette over e-book terms. Amazon called e-books prices of $14.99 or more “unjustifiably high,” and complained that higher prices suppress e-book sales.
While the post on Amazon’s Kindle forums provides what it says is “specific information about Amazon’s objectives” in its dispute with Hachette, it also appears to reiterate Amazon’s position on e-books since it launched the Kindle—that lower prices attract more consumers and drive significantly higher sales.
Amazon contends that keeping e-books priced at $9.99 or less can increase e-book sales by as much as 16%. Lower prices attract a larger audience—Amazon says the $9.99 price point can increase the size of author’s readership by as much as 74%—raising the payout for itself, the publisher and lifting royalty payments to authors. While the e-tailer acknowledges that “there are legitimate reasons for a small number of specialized titles to be above $9.99,” Amazon says its goal is to price e-books mostly at $9.99 or less.
In addition, Amazon proposes a revenue breakdown in which authors and publishers split 70% of the revenue with Amazon receiving the remaining 30%—once again placing an emphasis on what publishers pay their authors in royalties. “We believe 35% should go to the author,” Amazon writes. Indeed Amazon emphasizes that its 30% share is reasonable noting that that’s the same amount it was forced to take in 2010 when Hachette “illegally colluded with their competitors to raise e-book prices”--a reference of course, to the move to agency pricing which sparked the lawsuit against Hachette, Apple and four other publishers. Amazon contends that it only objects to the higher e-book prices instituted by Hachette and the other publishers, not to the 30% share of revenue it received under the agency pricing model.
“Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book,” Amazon says in the post, pointing out lower costs for digital publishing. “No printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market,” the post says.
“It's also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less,” according to the post. Amazon goes on to claim “repeated measurements across many titles,” that show the difference between selling a book at $14.99 and at $9.99. An e-book sold at $9.99, Amazon claims, will sell 1.74 copies for every single copy sold at $14.99. The result, according to Amazon, is an overall 16% increase of revenue. “At $9.99, even though the customer is paying less, the total pie is bigger and there is more to share amongst the parties.”
“Keep in mind that books don't just compete against books. Books compete against mobile games, television, movies, Facebook, blogs, free news sites and more,” Amazon writes. “If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.”